Central banks are buying the most gold since the end of the Second World War — here's why

Central banks have bought the most gold since the end
of World War II, with the commodity becoming an increasingly
valuable hedge against growing global instability.

The near-record buildup in government debt globally,
particularly in the US, makes other perceived risk-free assets
less attractive.

Gold is seen to have returns similar to equities in the
current cycle, and a dip in supply makes it a more valuable
asset for central banks and investors alike.

Central banks have been buying up gold at a rate not seen since
World War II as concerns about geopolitics and the strong dollar
see a shift in appreciation for the quintessential risk-free
asset.

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A broad combination of factors have led to gold's resurgence,
according to the research firm Bernstein. They include
geopolitical risk, concerns about government debt, supply issues,
and the perception that gold gives better returns over other
assets.

"Beyond just the threat of inflation, it is also remarkable that,
for the first time since the end of Bretton Woods and, indeed,
since the end of the Second World War, central bank buying of
gold has actually increased," a note sent to clients by the firm
said on Monday.

Equally, the case for gold purchases is boosted by the
near-record levels of government debt in the US, which makes
other potential risk-free assets more questionable and could
increase inflation figures.

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Gold is trading at $1,310 an ounce, up nearly 10% from its recent
low in September.

As well as its value related to inflation, gold is likely to see
demand increase, while supply will stay "flat at best," Bernstein
said, boosting its value to central banks and investors alike.
"As with any other commodity, robust demand and weak supply
implies price appreciation," Bernstein's analysts wrote.

Gold holdings had been on the decline for years but have seen a
clear boost recently.

Bernstein also pointed out that beyond the conversation about
central banks' holdings of gold was its increase in use over
jewelry. Both private and public "monetary" holding of gold have
overtaken jewelry demand as the primary source of demand growth
for gold in recent years, according to Bernstein.